This book covers a lot about transforming a traditional enterprise into a newer, more suited Lean based company. It covers from finances to portfolio management going throught adoption, technical practices and lot more.

The book is long. And tiring. But full of very valid useful bits of knowledge. I’ve covered Part I, Part II and Part III in previous posts. This is the final Part.

In Part IV, the authors cover how to handle transformation of the whole organization. The first point the authors stress is that the transformation is a forever going effort and that it’s goal is to change the company culture to an innovation culture. The definition for culture that the authors use comes from Shanley Kane’s collection of articles "Your Startup Is Broken: Inside the Toxic Heart of Tech Culture": “[…] Culture is about power dynamics, unspoken priorities and beliefs, mythologies, conflicts, enforcement of social norms, creation of in/out groups and distribution of wealth and control inside companies". The authors note that changing a culture is, by construct, hard to do. Cultures are created exactly with the objective of perpetuating behaviors and thinking patterns and they are created over time with a large body of constituents so they only change when all (or a large majority) of those constituents behaves and thinks differently.

The first step in culture change the authors highlight is the need to make it safe for members of the organization to fail. In order to innovate and change, organizations have to try things that are not going to work. If failing is viewed as a negative thing in the organization, its members will not take risks and will perpetuate the status quo.

The second one is to incentive and reward a growth mind-set. A growth mind-set is one where members are viewed as individuals who can grow their intelligence over time and increase the level of the problems they can handle. The growth mind-set opposes the fixed mind-set in which individuals that have a specific level of intelligence and can use that to solve the problems they encounter. Carol Dweck, a professor at Stanford, showed that people can shift to a growth mind-set if they are rewarded for the effort they put in solving problems they find challenging as opposed to rewarding the deployment of their existing skills. This step reshapes the way organizations hire and reward their members and allows to break past the “talent shortage" that so many complain about in IT.

The third step is to eliminate bias but, especially, hidden bias. There are strong hidden biases when evaluating performance and value generated especially associated to gender and race. As a consequence, it is hard to retain or even attract people that could contribute a lot to help the organization change by providing different perspectives and experiences.

The next big point the authors cover is Governance, Risk and Compliance. These groups in traditional enterprise organizations are often appointed as the blockers to change.

The first one, governance, is, according to the authors, about keeping the organization on course. It starts with the board of directors but continues throughout the organization and should deal with responsibility, accountability and authority, visibility and empowerment.

The second one, Risk, is the exposure to the possibility of something unpleasant occurring. The biggest lesson here is that risk should be managed proportionally to their impacts and likelihood. As a consequence, we should avoid “wouldn’t it be horrible if…" type of mentality as they stop us from being able to prioritize against the rest of the work we have.

The last one, Compliance, is the obedience to laws, industry regulations, legally binding contracts, and even cultural norms. Compliance can have serious consequence as fines, shut down or even jail. As a consequence, it is often treated as non-negotiable first priority always. This is harmful since it ignores the consequences of other events in your product or company. Using an economic framework (like Cost of Delay) helps consider the relative impact of any activity and make a more informed decision. Another great learning here is to architect your work in a way to limit the impact of frameworks and regulations so that there are less pieces affected by compliance.

The third point point to transformation is financial management. The old style anual budgets, adherence to said budgets as key performance indicators and basing decisions on the structure of capital expenses versus operating expenses are old ideas that hinder our ability to innovate.

The authors expose that traditional budgets encapsulate target, forecast and resource allocation. If we consider each separately, we can now act consciously on each to improve our reaction time and ability. Forecasting can now happen continuously as, with each new data point, we are more likely to forecast correctly and, therefore, have a better forecast. With a better forecast, we can make decisions on resource allocation that are smaller and less risky in the sense that they are more likely to impact the target we set as those should be smaller as they should be reached in a short amount of time.

In order to understand the value provided by each group, the authors suggest activity based accounting (or costing). The idea is to follow what a given activity provides of value to the organization and how each part of the organization contribute in costs for such activity to be successful. This makes it easier to understand the impact of our investment decisions.

The fourth point is very specific to old companies in which IT is viewed as an infrastructure cost. The authors argue that IT should become a competitive advantage should you expect to innovate quickly. They argue that a lot of that advantage can be obtained if central IT changes to be a product development organization; teams that build something, run that thing; and teams invest in reducing the complexity of existing systems. These steps should ensure that teams now hold both responsibility and freedom to make the decisions that impact their lives and to which they have the best information.

The last point may sound a bit obvious but it is still very important: transformation should start where the organization currently is. The current situation in the one that is the best to start changing. Waiting for an ideal time or hoping things are going to change without starting to act on it is a fallacy. Organizational change is a long or even endless road and the simple fact that we introduce a desire for a change tends to improve the overall performance of an organization because people are pushed to think and impact the business differently than they currently do. Once the short-term thrill passes, people get back to their usual way of working and the performance improvements are lost. To mitigate for that, the authors recommend to think more about deploying the strategy rather than polishing the strategy itself. It is about understanding how each level will be able to understand and act on the goals being set. To start the change, the authors recommend a few principles:

Ensure there is a clearly defined direction: the measurable business or organizational outcome

Define the initial scope and limit it: Choose a small part of the organization that support the change and start with it

Pursue a high-performance culture of continuous improvement: Use the Improvement Kata to help getting there

Start with the right people: Growth mind-set people who are willing to try the new ways

Find a way to deliver valuable, measurable results from early on: showing results early on helps draw attention and gather momentum to spread the result and keep people energetic to keep learning

And that takes us to the end of the book. A lot of the ideas shared by the authors in this book are a collection of learnings from Donald Reinersten's The Principles of Product Development Flow, Eric Ries’ Lean Startup, Jez Humble and David Farley’s Continuous Delivery, Taichii Ohno’s learnings from Toyota in many books including his own Workplace Management and many others. I’ll be posting more on the subject as it is of interest to me so keep tuned. If it wasn’t clear, I strongly recommend reading this book if you are in a large organization or if you interact with large organization or if you hope to (either become one or interact with one).